MEXICO CITY, Feb 11 - Bank of Mexico Deputy Jonathan Heath said he does not believe inflation will fall to the central bank’s 3% target in the second quarter of next year, a projection the bank published last week that he described as overly optimistic.
Last Thursday the central bank left its benchmark interest rate unchanged at 7.0% following what the institution described as 12 consecutive interest rate cuts, and released updated forecasts that push the expected timing for achieving the 3% inflation goal to the second quarter of 2027. That represents a notable extension compared with the bank’s prior projection, which had pointed to the third quarter of this year.
In a podcast interview released Wednesday by financial group Banorte, Heath - who in November previously said the bank faced a "credibility crisis" over its inflation forecasts - cautioned that the central bank might be relying on projections that are too sanguine. He argued the bank may be underestimating structural inflation pressures and could risk damaging its own credibility if it moves prematurely to ease policy.
"I have consistently voted since the start of this cycle that we should be more cautious and move more slowly in cutting rates, because it’s not clear that inflation is close to its targets - nor even that it will meet them by the second quarter of 2027," Heath said.
Heath added a wider skepticism about the forecast horizon: "Basically, almost nobody believes that not only are we not going to meet the goal for the second quarter of 2027, but not even in the next four or five or ten years."
Banxico said last Thursday it would evaluate additional adjustments to the benchmark interest rate. According to Heath, the central bank’s public message implies that if inflation evolves along the path the board anticipates, monetary policy could be loosened "as early as March." Heath, however, described what he sees as a disconnect between the updated macroeconomic projections and the suggestion that rate cuts might resume soon.
"I would say it was completely naïve to think we could bring inflation down to 3% by mid-year," Heath said, adding that core inflation in particular "needs to show a clear, clear downward trend before we begin easing further."
Official data published on Monday showed both headline and core inflation rose in January. The closely watched core index climbed to 4.52% from 4.33% in December, marking its highest reading since March 2024. Those figures provide the immediate backdrop to Heath’s call for caution and help explain his reluctance to support a near-term shift toward easing monetary policy.
Heath’s comments highlight an internal debate over the pace and timing of future rate decisions. The deputy governor framed his position as one of prudence - urging slower, more measured reductions in the policy rate until there is clear evidence that underlying inflation is on a sustained downward path.
The perspectives Heath advanced are centered on forecasting risk and the potential costs to central bank credibility if policy loosening precedes unambiguous signs of disinflation. He emphasized the need for a demonstrable downward trend in core inflation before the board pursues further rate cuts.
Summary: Deputy governor Jonathan Heath rejects the view that inflation will return to 3% by mid-2027 as forecast by the central bank, warning of overly optimistic projections and advocating a more cautious approach to rate cuts while pointing to January’s uptick in core inflation as evidence for restraint.